When it comes to financing your small business, you have a range of options to choose from. Here are the different kinds of business loans to consider:
Term Loans
Term loans are a popular option for small businesses looking for a lump sum of money to be paid back over a fixed period. They are typically used for long-term investments such as expanding a business or purchasing new equipment. The loan amount, interest rate, and repayment term are fixed at the time of the loan.
SBA Loans
The Small Business Administration (SBA) provides several loan programs to help small businesses. The most popular program is the SBA 7(a) loan, which can be used for a variety of business purposes, such as purchasing inventory, refinancing debt, or buying equipment. SBA loans have more flexible terms and lower interest rates than traditional term loans.
Business Line of Credit
A business line of credit is a loan that provides a flexible funding source for short-term needs, such as inventory purchases or payroll. You can draw from the credit line as needed and only pay interest on the amount you borrow. It is a good option for businesses with fluctuating cash flow.
Invoice Financing
Invoice financing, also known as accounts receivable financing, is a type of loan where a lender provides funds based on outstanding invoices. The lender advances a percentage of the invoice amount, typically 80-90%, and charges a fee for the service. Once the customer pays the invoice, the lender takes its fee and releases the remaining funds to the business.
Equipment Financing
Equipment financing is a loan specifically designed for purchasing equipment or machinery. The loan amount is typically based on the value of the equipment being purchased, and the equipment itself serves as collateral. This type of loan is beneficial for businesses looking to upgrade or replace their equipment without tying up their cash flow.
Commercial Real Estate Loans
Commercial real estate loans are used to purchase or renovate the property for business purposes. The loan amount is based on the value of the property and the business’s ability to repay the loan. These loans typically have longer repayment terms than other types of loans, and the property serves as collateral.
Merchant Cash Advance
A merchant cash advance is a type of loan where a lender provides a lump sum of money in exchange for a percentage of the business’s future credit card sales. The repayment is made through daily or weekly deductions from the business’s credit card transactions. This type of loan is beneficial for businesses with high credit card sales volume but poor credit scores.
